Making Payment

• Johnathan McJohnson is a typical suburban consumer. Each month he and his family buy a wide range of goods and services used to provide satisfaction and to enhance their living standards. One such purchase is electricity used to operate his 52-inch plasma screen television, his central air conditioning system, and his electric weed whacker and grass trimmer. He buys this electricity through a direct Internet transfer from his online banking website to his local electric company.


• Manny Mustard operates a popular restaurant near the Shady Valley Sprawling Hills Shopping Mall, which serves the popular Deluxe Club Sandwich to lunch hungry patrons. To prepare this product, Manny purchases an assortment of inputs--including bread, lettuce, tomatoes, bacon, ham, turkey, and barbecue sauce--from Freshable Produce, a local grocery wholesale distributer. He makes payment for these inputs with a company check to Freshable Produce.


• Winston Smythe Kennsington III is a wealthy industrialist and financier who suspects that his sister, Geraldine Constance Kennsington, is secretly seeking to undermine his leadership of OmniConglomerate, Inc. To ward off such an effort, he has hired the services of Seth Mullholland, a former covert military operative, to acquire unflattering and possibly incriminating information on his sister, which he hopes will convince Geraldine to discontinue her efforts. Winston pays for Seth's services with a satchel full hundred dollar bills.

A Bit About Barter

Suppose, for example, that Manny is seeking to acquire his sandwich making ingredients without the benefit of money. He would need to work out a barter trade with Freshable Produce, such as trading a dozen Deluxe Club Sandwiches for a crate of tomatoes. If the owners and employees of Freshable Produce need a dozen sandwiches, then this is a workable barter exchange. But if they do not, then there is no double coincidence of wants and Manny must do without his tomatoes.

At least Manny can not get his tomatoes without spending some time, perhaps a great deal of time, seeking to trade his club sandwiches to someone else for a good that the Freshable Produce does want or need. Manny might need to seek out dozens of other people, conducting dozens of intermediate trades, before he finally has a good that can be traded for tomatoes. The time I spend on barter trades is time that Manny CANNOT spend preparing other club sandwiches, to the loss of hungry consumers throughout the town.

Money eliminates the need for double coincidence of wants because EVERYONE is willing to accept money in payment for goods. Manny can trade his sandwiches for money (that is, sell), trade this money for the produce (that is, buy), then continue his club sandwich production. With a generally accepted medium of exchange, trades are easier, more efficient, and resources can spend more time doing production.

The Other Three Functions

• Unit of Account: This function means that money is used to designate the prices of goods and services. Any item that is generally accepted as payment for goods and services is also the obvious choice for denominating the prices of those goods and services.


• Store of Value: This function means that money can be used to purchase the same quantity of goods and services, that provide the same consumption value, in the future as it can purchase today. Inflation is the primary nemesis for the ability of money to store value.


• Standard of Deferred Payment: This function means that money is used to designate future payments, such as those for loan repayments. The standard of deferred payment is a natural result of the standard unit of account and store of value functions of money.